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WesternZagros Announces 2016 Fourth Quarter and Year End Results

CALGARY, ALBERTA--(Marketwired - March 15, 2017) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the Company") announced today its operating and financial results for the fourth quarter and year ended December 31, 2016. All amounts set out in this press release are in US dollars unless otherwise stated.

Commenting on the year end and subsequent events, WesternZagros's Chief Executive Officer, Simon Hatfield said:

"In 2016 our focus was on containing costs and protecting our balance sheet in view of the global recession in the oil and gas industry. We see the outlook improving for 2017 and are prudently preparing to increase activity on our Garmian and Kurdamir blocks. We are encouraged by the receipt of oil sales payments for IOCs for 2016 from the Kurdistan Regional Government. We are also pleased to announce the receipt of payments for our January and February 2017 oil sales, which reinforce our optimism for the Region. On Garmian, we are planning to drill the Sarqala-2 well in the third quarter of this year with the goal of tripling our production. On Kurdamir, although we are working diligently with Repsol and the KRG, the project has taken more time than anticipated to negotiate the development plan and gas sales agreement, and as such, the timing for the first phase of development is uncertain.

We have increased the Garmian Gross Block's estimated 2P Reserves by 60 percent to over 20 million barrels of oil and without any material change to the Gross Block's estimate of unrisked P50 Prospective Resources, now at 65 million barrels of oil. Our Sarqala-1 well continues to produce at over 5,000 barrels of oil per day. To date, the well has produced 4.5 million barrels of high quality crude with no evidence of formation water or hydrogen sulphide.

We continue to defer the draw down dates of our debt facility to better align with our anticipated capital requirements, notably the anticipated spud of the Sarqala-2 well. We also continue to review alternate financing options to best fund the advancement of our projects while maintaining our financial flexibility."

WesternZagros achieved several key financial and operational milestones during 2016 and to date, including:

Reserves and Resources - Highlights of the Company's Garmian Reserves as at December 31, for the Sarqala Jeribe / Upper Dhiban reservoir include:

The estimated NPV10 of the Company's 2P Reserves increased by 250 percent to US$113.4 million.(1)

The Garmian Block NPV10(1) reflects a value of CAD$0.18/share(2) on a fully diluted share basis.

The Company's Garmian Reserves from year end 2015 and year end 2016 are shown in the table below:

December 31, 2015

December 31, 2016

Proved Plus Probable (2P)

Proved Plus Probable (2P)

Gross

Working

NPV(10)(1)

Gross

Working

NPV(10)(1)

Block

Interest

Block

Interest

Oil Reserves

(MMbbl)

(MMbbl)

(US$million)

(MMbbl)

(MMbbl)

(US$million)

Garmian Block - Kurdistan Region of Iraq

Jeribe / Upper Dhiban

12.8

5.1

$32.5

20.7

8.3

$113.4

(1)

NPV10 refers to the estimated net present value of future net revenue associated with such Reserves using forecast prices and costs and a 10 percent discount rate. Estimated value of future net revenue does not represent fair market value.

(2)

Per share value computed based on 786.7 million common and preferred shares outstanding with 23.6 million common shares added for in the money options based on Canadian/US exchange rate of 0.7631. This per share value is only one component of, and is not intended to provide an estimate of the per share value of the Company.

The highlight of the Company's unrisked Prospective Resources (Gross Block P50) for the Sarqala Jeribe / Upper Dhiban reservoir of the Garmian block as at December 31, 2016 is that the estimate is 65 MMbbl of oil, a change of less than 2 percent from the 2015 estimate. This is contrary to the Company's previous expectation that the material increase in Garmian Reserves would result in a material reduction of the estimated Prospective Resources. The major reason that the Prospective Resources remained effectively the same, after the material increase in Reserves, is that the Company's material balance analyses provides for higher confidence in Prospective Resources below the revised lowest known oil level (i.e. the maximum depth cut-off for Reserves).

There was no change to the Kurdamir Oligocene unrisked Contingent Resources of 366 MMbbl of oil, 1.8 Tcf of natural gas and 55 MMbbl of condensate or the unrisked Prospective Resource of 1 billion barrels of oil and 1 Tcf of natural gas (all Gross Block P50 estimates). All Reserves and Resources estimates listed above have been audited by the Company's independent reserves evaluator, Sproule International Limited ("Sproule").

Financial - The Company ended the year with $24.7 million in cash and cash equivalents and an undrawn $200 million credit facility provided by Crest Energy International LLC ("Crest"). The Company entered into a letter agreement with Crest on October 18, 2016 and then an agreement on March 1, 2017 to further extend the timing to draw on the credit facility to better meet the Company's capital expenditure profile and reduce near term financing costs.

Production - Fourth quarter gross oil sales from the Sarqala field averaged 5,175 barrels of light oil per day
("bbl/d"), of which WesternZagros's net oil sales were 1,396 bbl/d. For 2016, gross oil sales averaged 4,030 bbl/d of which the Company's net sales were 1,083 bbl/d, with sales limited during the first quarter of 2016 due to marketing restrictions. Gross oil sales, on an operational day basis, averaged, 5,305 bbl/d. The Sarqala-1 well has now produced 4.5 million barrels of light oil with no indications of formation water and no hydrogen sulphide.

Revenue - Revenue recognized by WesternZagros during the fourth quarter was $4.9 million for with an average realized price of $38.37/bbl. Subsequent to December 31, 2016, the Company received payment for outstanding revenue related to the fourth quarter, resulting in no remaining outstanding receivables for 2016 revenue. Revenue for the year was $14.4 million and proceeds were fully collected in accordance with production sharing contract ("PSC") entitlements. In addition, WesternZagros has received $3.5 million of revenues for January and February 2017 oil sales.

Cost Reduction Initiatives - Recent Garmian oilfield service tender responses are reflecting a significant reduction in service industry costs in Kurdistan and WesternZagros expects to see future well costs decline by 15 percent or more over previous well estimates.

Garmian Development-The Sarqala-2 well on the Garmian Block is planned to be drilled in the third quarter of
2017. This is the Company's first Garmian development well targeted with the advantage of 3D seismic data and designed as a producing well for the Jeribe reservoir. Revised drilling and completion techniques will be used in Sarqala-2 and it is anticipated to be put on stream in early 2018 with the objective of tripling the current field production levels. In addition, the drilling of Sarqala-3 is planned for 2018 and is designed to further advance the project up to 25,000 bbls per day by 2020.

Kurdamir Development - WesternZagros and Repsol continue to advance discussions with the KRG on finalizing the approval of the Kurdamir Development Plan. The major outstanding matter is the finalization of the gas sales agreement for phase 1 gas volumes applicable to the Kurdamir project and the adjacent Topkhana project. The two projects are to be developed concurrently with the sharing of top side facilities to optimize capital costs.

Corporate - On December 14, 2016, Jonathan Oestreich, Senior Advisor at Caswell Investments, LLC, was appointed to the WesternZagros Board of Directors as an independent director. Mr. Oestreich has in excess of 20 years of experience in corporate finance and mergers and acquisitions and securities law.
WesternZagros continues to review strategic initiatives to improve financial flexibility including but not limited to potentially accessing the debt and/or equity markets or seeking additional partnerships, farmouts or other strategic arrangements.

Reserves and Resources Update

The tables below summarize the Company's Reserves, Contingent Resources and Prospective Resources for the Garmian and Kurdamir Blocks as evaluated and audited by Sproule as at December 31, 2016(1).

Garmian Reserves, Contingent and Prospective Resources

RESERVES

License

Resource

Gross
Block
Oil
Reserves(2)

Company
Gross(2)
Oil
Reserves

Company
Net(2)
Oil
Reserves

NPV
10(4)
US$million

MMbbl

MMbbl

MMbbl

1P(2)

10.6

4.2

2.8

36.4

Sarqala Field

Garmian

2P(2)

20.7

8.3

5.6

113.4

Jeribe / Upper Dhiban

3P(3)

40.4

16.1

10.7

221.7

CONTINGENT RESOURCES(2)

2C (Best Estimate)

Gross Block

Gross Block

Company Gross(2)

License

Resources (Classification)

Unrisked

Risked

Risked

Contingent

Contingent

Contingent

Resources

Resources

Resources

Garmian

Sarqala Field

Oil (MMbbl)

1.9

1.6

0.6

Total Oil

1.9

1.6

0.6

PROSPECTIVE RESOURCES(2)

P50 (Best Estimate)

Gross Block

Gross Block

Company Gross(2)

License

Resources (Classification)

Unrisked

Risked

Risked

Prospective

Prospective

Prospective

Resources

Resources

Resources

Garmian

Sarqala Field Jeribe / Upper

Oil (MMbbl)

65

52

21

Total Oil

65

52

21

Solution Gas (Bcf)

131

106

42

Total Gas

131

106

42

Total MMBOE

86

70

28

Kurdamir Contingent and Prospective Resources

CONTINGENT RESOURCES(2)

2C (Best Estimate)

License

Resources

Gross
Block
Unrisked
Contingent
Resources

Gross
Block
Risked
Contingent
Resource

Company
Gross(2)
Risked
Contingent
Resources

Kurdamir

Oligocene

Oil (MMbbl)

366

311

124

Natural Gas Liquids (MMbbl)

55

46

19

Total Oil and Liquids

420

357

143

Solution Gas (Bcf)

380

323

129

Associated and Non

Associated Gas (Bcf)

1,414

1,201

481

Total Gas

1,794

1,524

610

Total MMBOE

719

611

244

PROSPECTIVE RESOURCES(2)

License

Resources (Classification)

P50 (Best Estimate)

Gross Block
Unrisked
Prospective
Resources

Gross Block
Risked
Prospective
Resources

Company Gross(2)
Risked
Prospective
Resources

Kurdamir

Oligocene

Oil (MMbbl)

1,004

481

192

Natural Gas Liquids (MMbbl)

Total Oil and Liquids

1,004

481

192

Solution Gas (Bcf)

1,033

495

198

Associated and Non

Associated Gas (Bcf)

Total Gas

1,033

495

198

Total MMBOE

1,176

564

225

Notes:

Values may not add or be consistent from one presentation to the next due to rounding.

See "Reserves and Resources Advisory" below for definitions of terms used in the table and further information in respect of the estimates.

Possible Reserves are those additional Reserves that are less certain to be recovered than Probable Reserves. There is a 10 percent probability that the quantities actually recovered will equal or exceed the 3P Reserves.

Technically recoverable volumes which are sub-economic under current conditions but may become economic in future.

Fourth Quarter 2016 and Year End Results

WesternZagros has posted its operating and financial results for the fourth quarter and year ended December 31, 2016 on its website. The financial statements, the Management Discussion and Analysis, and the Annual Information Form are available at www.westernzagros.com and on SEDAR at www.sedar.com.

Outlook

WesternZagros continues to focus on advancing development in accordance with the approved Garmian FDP and securing KRG approval of the phased development plan for the giant Kurdamir field in line with market conditions and dependent upon the sustainability of regular payments for production.

In 2017, the Company anticipates the average daily productive capacity of Sarqala-1 will range from 4,500 to 5,000 bbl/d. Assuming continuous production and payments for the year, and an average Brent price of $50 to $55 per barrel, WesternZagros estimates 2017 revenues of $17 to $22 million.

The Company has $24.7 million in cash and cash equivalents as at December 31, 2016 to advance the field development plans with its co-venturers. The Company continues its focus on strict cost management and estimates spending approximately $35 million in 2017 to operate the Sarqala production operations, advance the respective development of the Garmian and Kurdamir blocks with its co-venturers and fund WesternZagros head office costs, but excluding any drilling capital. The Sarqala-2 well is anticipated to spud in the third quarter of 2017. A Final Investment Decision ("FID") on this well is planned for the second quarter with an estimated cost net to the Company of $25 to $30 million. The Company will provide further guidance on the anticipated quantum and timing of capital expenditures for the respective Garmian and Kurdamir projects as the field development plans and related development budgets are finalized and approved.

The Company is reviewing all financing alternatives including but not limited to, the completion of an alternative debt financing or equity financing, or the farm down or sale of some of the assets of the Company to advance the developments. The Company has retained TD Securities to act as its financial advisor.

Liquidity and Capital Resources

As at December 31, 2016, WesternZagros had $24.7 million in cash and cash equivalents and an undrawn $200 million debt facility provided by Crest in a loan agreement between the parties dated August 14, 2014, as amended (the "Loan Agreement"), which is available in two tranches subject to certain conditions precedent: one tranche is for up to $50 million (the "$50M Tranche") and the other tranche is for up to $150 million (the "$150M Tranche").

On March 1, 2017, the Company entered a fourth letter agreement with Crest to extend the Drawdown Deadline for each of the two tranches to better align with the Company's anticipated capital needs. The Drawdown Deadline for the $50M tranche has been extended from March 1, 2017 to May 1, 2017. In addition, the maturity date for this tranche has been extended from March 1, 2019 to May 1, 2019. The drawdown deadline for the $150M tranche has been extended from August 1, 2017 to November 1, 2017, with a corresponding extension of the maturity date for this tranche from August 1, 2019 to November 1, 2019. This deferral of the deadlines provides the Company with an opportunity to reduce commitment fees and interest costs as it does not expect to need to access any funds until the third quarter of 2017 based upon the currently anticipated level and timing of capital expenditures. All other terms of the Loan Agreement remain in effect unamended.

With the existing capital resources on hand and anticipated revenue, the Company anticipates that it is fully funded for currently planned activities for the next twelve months (excluding the drilling of Sarqala-2). However, additional funding will be required by the Company as it advances the execution of its development activities, including the spud of Sarqala-2. The sources for such additional funding may include the existing Crest debt facility but, as previously announced, the Company is also exploring all other financing alternatives to allow for optimum alignment of capital availability with the development plan needs of the Company.

About WesternZagros Resources Ltd.

WesternZagros is an international natural resources company focused on acquiring properties and exploring for, developing and producing crude oil and natural gas in Iraq. WesternZagros, through its wholly-owned subsidiaries, holds a 40 percent working interest in two Production Sharing Contracts with the Kurdistan Regional Government in the Kurdistan Region of Iraq. WesternZagros's shares trade in Canada on the TSX Venture Exchange under the symbol "WZR".

This news release contains certain forward-looking statements relating to, but not limited to, anticipated capital and other commitments and the timing thereof, expectations regarding the necessity for further funding and the timing and potential sources thereof, operational information, development plans, anticipated capacity of facilities and expected production rates, revenues, and petroleum costs (as defined in each Production Sharing Contract). Forward- looking information typically contains statements with words such as "anticipate", "estimate", "expect", "potential", "could", or similar words suggesting future outcomes. The Company cautions readers and prospective investors in the Company's securities to not place undue reliance on forward-looking information as, by its nature, it is based on current expectations regarding future events that involve a number of assumptions, inherent risks and uncertainties, which could cause actual results to differ materially from those anticipated by WesternZagros.

Forward-looking information is not based on historical facts but rather on management's current expectations as well as assumptions made by, and information currently available to management, concerning, among other things, development plans, future capital and other expenditures (including the timing, amount, nature and sources of funding thereof), the outcomes of future well operations, drilling activity and testing, the installation and commissioning of facilities, the ability to access the Company's existing debt facility or to secure alternate financing, the continued ability to sell production in the domestic or export markets and the quantum and timing of payments to be received in connection therewith, anticipated operating costs, future economic conditions, future currency and exchange rates, continued political stability, continued security in the Kurdistan Region, timely receipt of any necessary co-venturer, government or regulatory approvals, the successful resolution of any disputes, the Company's continued ability to employ qualified staff and the continued participation of the Company's co-venturers in joint activities. In addition, budgets are based upon WesternZagros's current development plans and anticipated costs, both of which are subject to change based on, among other things, the outcome of negotiations with co-venturers and the government, the actual outcomes of well operations, drilling activity and testing and the installation and commissioning of facilities, unexpected delays, availability of future financing and changes in market conditions. Although the Company believes the expectations and assumptions reflected in such forward-looking information are reasonable, they may prove to be incorrect.

Forward-looking information involves significant known and unknown risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated by WesternZagros including, but not limited to, risks associated with the oil and gas industry (e.g. operational risks in development and production; inherent uncertainties in interpreting geological data; changes in plans with respect to capital expenditures; interruptions in operations together with any associated insurance proceedings; the uncertainty of estimates and projections in relation to timing, costs and expenses and health, safety and environmental risks), the risk of commodity price and foreign exchange rate fluctuations, risks relating to the ability to access export or domestic markets, risks relating to the ability to access export markets and to receive payments in accordance with the PSC terms on a timely basis, risks relating to the ability to access the Company's existing debt facility or other financing as and when needed, the uncertainty associated with any dispute resolution proceedings, the uncertainty associated with negotiating with foreign governments and risk associated with international activity, including the lack of federal petroleum legislation, ongoing political disputes and recent terrorist activities in Iraq in particular.

Readers are cautioned that the foregoing list of important factors is not exhaustive and that these factors and risks are difficult to predict. The forward-looking statements contained in this news release are made as of the date of this news release and, except as required by law, WesternZagros does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement. See the "Risk Factors" section of the Company's Annual Information Form ("AIF") dated March 14, 2017 filed on SEDAR at www.sedar.com for a further description of these risks and uncertainties facing WesternZagros. Additional information relating to WesternZagros is also available on SEDAR at www.sedar.com, including the Company's AIF.

Non-IFRS Measures

Field netback is a non-IFRS measure that represents the Company's working interest share of oil sales, after deducting royalties and operating expenses. Management believes that the field netback is a useful measure to analyze operating performance and provides an indication of the Company's results of business activities prior to other income and expenses. Field netback does not have a standard meaning under IFRS and may not be comparable to similar measures used by other companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS such as total income (loss) or cash flow from (used in) operating activities. See the "Financial Performance" section of the Company's MD&A dated March 14, 2017 for a reconciliation of field netback.

Reserves and Resources Advisory

In addition, statements relating to reserves and other resources contained herein are deemed to be forward -looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources described can be economically produced in the future. Future net revenue values are estimated values only and do not represent fair market value. There is no assurance that the forecast prices and cost assumptions, the initial phases of the development plans as submitted to the KRG and anticipated future phases contemplated in completing the full field development utilized in such estimated values will be attained and variances could be material. The reserve and resource estimates provided herein are estimates only and there is no assurance that the estimated reserves and other resources will be recovered. Actual reserves and other resources may be greater than or less than the estimates provided herein. Terms related to resource classifications referred to herein are based on the definitions and guidelines in the Canadian Oil and Gas Evaluation Handbook which are as follows. The reserves have been evaluated by Sproule International Limited ("Sproule"). Resources other than reserves have been estimated by the Company and audited by Sproule.

"Reserves" are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on (a) analysis of drilling, geological, geophysical and engineering data, (b) the use of established technology and (c) specified economic conditions which are generally accepted as being reasonable and shall be disclosed. Reserves are classified as Proved, Probable or Possible according to the degree of certainty associated with the estimates. "Proved Reserves" are those Reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated Proved Reserves. If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated Proved Reserves. "Probable Reserves" are those additional Reserves that are less certain to be recovered than Proved Reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated Proved plus Probable (2P) Reserves. If probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated 2P Reserves. "Possible Reserves" are those additional Reserves that are less certain to be recovered than Probable Reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated Proved plus Probable plus Possible (3P) Reserves. If probabilistic methods are used, there should be at least a 10 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated 3P Reserves.

"Contingent Resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent Resources have an associated chance of development (economic, regulatory, market and facility, corporate commitment or political risks). The Contingent Resources estimates referred to herein have not been risked for the chance of development. There is no certainty that the Contingent Resources will be developed and, if developed, there is no certainty as to the timing of such development or that it will be commercially viable to produce any portion of the Contingent Resources.

"Prospective Resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective Resources have both an associated chance of discovery (geological chance of success) and a chance of development (economic, regulatory, market, facility, corporate commitment or political risks). The chance of commerciality is the product of these two risk components. Unless otherwise indicated, the estimates referred to herein have not been risked for either the chance of discovery or the chance of development. There is no certainty that any portion of the Prospective Resources will be discovered. If a discovery is made, there is no certainty that it will be developed or, if it is developed, there is no certainty as to the timing of such development or that it will be commercially viable to produce any portion of the Prospective Resources.

Gross Block resource estimates presented herein represent the total volumes for the indicated reservoirs attributable to 100 percent of the relevant block, without any adjustment for the Company's working interest therein whereas the Working Interest (Gross) or Company Gross resource estimates presented represent the Company's 40 percent working interest (operating or non-operating) share before deduction of royalty petroleum, profit petroleum, production bonuses and capacity building support payments pursuant to the provisions of the applicable Production Sharing Contract.

Best Estimate (P50) or (2C) is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater of less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the best estimate.

A barrel of oil equivalent (BOE) is determined by converting a volume of natural gas to barrels using the ratio of 6 thousand cubic feet (Mcf) to one barrel. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 BOE is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

The section "Statement of Reserves and Other Oil and Gas Information" (including Schedule A ) contained in the Company's AIF dated March 14, 2017 filed on SEDAR at www.sedar.com, contains additional detail with respect to the Company's resource assessments and the estimates of net present value associated with its Reserves. This section includes the significant risks and uncertainties associated with the volume estimates and the recovery and development of the resources, the forecast prices and cost assumptions, descriptions of the applicable projects and FDPs and the specific contingencies which prevent the classification of the Contingent Resources as Reserves.

As indicated above, unless otherwise indicated, the estimates of Contingent Resources and Prospective Resources contained in this document are presented on an unrisked basis. Readers should refer to the AIF for the associated risked estimates of Contingent Resources and Prospective Resources. Such risked estimates are based upon the Company's estimates of chance of commerciality set forth therein which involves assessing various risks based upon a number of assumptions and other factors. While the Company believes that such estimates and underlying assumptions are reasonable, many of these assumptions are beyond the Company's control, are subject to change and may not, over time, prove to be accurate. As such, the actual level of various risks (including those currently identified and additional risks which may be identified in the future) could prove to be greater and the chance of commerciality lower than currently estimated and such differences could be material.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE